London Stock Exchange Group PLC (LON:LSE) has announced its preliminary results for the year ended 31 December 2020.
· Strong financial performance – revenue growth continues across our businesses despite challenging market conditions
· Strong operational resilience across the Group’s data, trading and clearing platforms
· Successful completion of the acquisition of Refinitiv in January 2021 – transformational transaction brings together two highly complementary global businesses with a shared commitment to an Open Access philosophy, working in partnership with customers
· Acquisition will accelerate the Group’s growth strategy and position as a leading global financial markets infrastructure and data provider – increasing its global footprint and adding leading data, analytics and multi-asset class capital markets capabilities
· The Group is focused on delivering the strategic benefits of the transaction for customers, shareholders and broader stakeholders – extensive integration programme roll-out underway across the three core operating divisions: Data & Analytics, Capital Markets, and Post Trade
2020 Financial Highlights
· Total revenue up 3% to £2,124 million (2019: £2,056 million) and total income up 6% to £2,444 million (2019: £2,314 million) (up 5% on a constant currency basis)
· FTSE Russell revenue up 3% to £668 million (2019: £649 million) with growth in subscription revenues offset by a decline in asset-based revenues following significantly lower ETF AUM levels in H1
· Post Trade revenue up 7% to £751 million (2019: £700 million), driven by strong growth in LCH; record activity in CDS, FX and cash equities clearing; total income up 12% to £1,070 million (2019: £955 million), largely reflecting higher cash margin held
· Capital Markets revenue broadly flat on a reported basis at £427 million, and up 8% on a like-for-like basis excluding the one-off benefit of an IFRS 15 adjustment in prior year with strong performance in secondary markets
· Adjusted operating expenses, before depreciation and amortisation1, were up 6% (up 5% on a constant currency basis) to £887 million (2019: £839 million)
· Adjusted operating profit2 up 5% to £1,118 million (2019: £1,065 million); operating profit up 2% to £755 million (2019: £738 million); adjusted EBITDA2 up 5% to £1,329 million (2019: £1,265 million) and EBITDA margin of 54.4%
· Adjusted EPS2 up 5% to 209.7 pence (2019: 200.3 pence); basic EPS up 1% to 120.3 pence (2019: 119.5 pence)
· Proposed final dividend of 51.7 pence per share, resulting in a 7% increase in the full year dividend to 75.0 pence per share, reflecting good performance and confident outlook for the new Group
Continued organic and inorganic development, including:
· FTSE Russell index selected by BlackRock for the first climate risk-adjusted Government Bond ETF utilising the FTSE Advanced Climate EGBI
· FTSE Russell signed long-term expanded index derivative agreements with Cboe Global Markets and Singapore Stock Exchange
· LCH continued leadership on global reference rate reform – the transition to SOFR discounting saw US$120 trillion in notional transitioning to the risk-free rate in October 2020. LCH also became the first clearing house to offer Singapore Dollar swaps benchmarked to SORA
· ForexClear became the first service to launch clearing for non-deliverable FX options across nine currency pairs
· Over £718 billion raised on our fixed income markets of which £75 billion raised through Covid-19 response bonds
· China Yangtze Power Co. raised US$1.83 billion through Shanghai-London Stock Connect, the first Chinese issuer to receive London Stock Exchange’s Green Economy Mark, highlighting London’s position as an international centre for sustainable finance
1 Before depreciation, amortisation and non-underlying items.
2 Before amortisation of purchased intangible assets and non-underlying items.
Commenting on performance for the year, David Schwimmer, Chief Executive Officer, London Stock Exchange Group:
“The Covid-19 pandemic and broader geo-political events presented unprecedented challenges in 2020. Despite this environment, and with the vast majority of employees working remotely across our global locations, LSEG has delivered for its customers and provided a strong financial performance, demonstrating strong operational resilience. We continue to innovate and work in partnership with our customers to develop our services, in areas such as reference rate reform and sustainable investment.
“Completion of the acquisition of Refinitiv in early 2021 marked an important milestone in LSEG’s history. This transformational transaction brings together two highly complementary global businesses with a shared commitment to Open Access. LSEG is now truly global with a significant presence in North America, Europe, Asia and emerging markets, bringing together exceptional skills and experience at scale. While early days, the work we have done so far confirms the quality of the business and the extent of the opportunities across the Group as we focus on integration and delivering the strategic and financial benefits of the transaction to our customers, shareholders and other stakeholders. LSEG is well positioned for long-term sustainable growth in a continually evolving landscape as a leading global financial markets infrastructure and data provider.”
The Group will host a presentation and conference call on its Preliminary Results for analysts and institutional shareholders today at 09:00am (GMT). On the call will be David Schwimmer (Chief Executive Officer), Anna Manz (Chief Financial Officer) and Paul Froud (Group Head of Investor Relations).
To access the telephone conference call or audio-only webcast please pre-register in advance using the following link and instructions below:
· Please register with your full name, company name and email address
· If you wish to participate in Q&A then you will also need to register for the telephone conference call. The telephone conference registration link can be found in the link above.
Presentation slides can be viewed at http://www.lseg.com/investor-relations
For further information, please call the Group’s Investor Relations team on +44 (0)20 7797 3322.
The information in the preliminary announcement of the results for the year ended 31 December 2020, which was approved by the Board of Directors on 5 March 2021, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The financial statements for the year ended 31 December 2019 were filed with the Registrar of Companies, and the audit report was unqualified and contained no statements in respect of Sections 498 (2) and 498 (3) of the UK Companies Act 2006. The financial statements for the year ended 31 December 2020 will be filed with the Registrar of Companies in due course.
In accordance with the Listing Rules of the UK Listing Authority, these preliminary results have been agreed with the Company’s auditors, Ernst &Young LLP, and the Directors have not been made aware of any likely modification to the auditor’s report to be included in the Group’s Annual Report and Accounts for the year ended 31 December 2020.
The preliminary results have been prepared on a basis consistent with the accounting policies set out in the Group’s Annual Report and Accounts for the year ended 31 December 2020.
The Covid-19 pandemic and broader geopolitical events presented unprecedented challenges in 2020. Throughout, LSEG has been focused on ensuring the welfare of our employees and continuity of services to our customers. Our systemic role has perhaps never been clearer: maintaining access to our capital markets; managing risk through our clearing operations; and providing important information services to market participants.
Despite this unparalleled environment, and with the vast majority of employees working remotely across our global locations, LSEG has delivered a strong financial performance and demonstrated strong operational resilience. The Group also remains highly cash generative. As our financial performance demonstrates, our focus on product and service development is delivering results across our businesses. Our Open Access and Customer Partnership approach remains key to our strategy as we work with customers to innovate in a range of areas, from reference rate reform to sustainable investment. We have also continued to invest in our business as we grow, while remaining focused on efficiency and operational excellence to maintain and enhance our resiliency, deliver system scalability and support our growing global footprint. For example, LCH successfully implemented a new clearing platform for its EquityClear service in March. The platform offers next generation clearing, operations and risk functionality, increasing operational efficiencies and enabling enhanced risk management for the service.
We keep a close eye on the broader macro-economic, technological and regulatory factors which continue to drive change in our industry. The digital transformation of financial markets infrastructure is driving customer demand to work with global providers that are better positioned to do more for them across the financial markets value chain.
In January, we successfully completed the Refinitiv transaction. LSEG’s acquisition of Refinitiv will enable us to shape the industry’s evolution, accelerating our strategy to be a leading global financial markets infrastructure and data provider. This transformational combination will deliver value to customers, helping them to access data, trading tools, analytics, liquidity and risk management across the financial markets and around the globe. LSEG is now truly global with a significant presence in North America, Europe, Asia and emerging markets, operating in 70 countries, bringing together exceptional skills and experience at scale. The Group is firmly focused on delivering the strategic benefits of the transaction to our shareholders, customers and other stakeholders. Integration of the businesses is fully underway as we implement the various multi-year opportunities identified across the three core operating divisions: Data & Analytics; Capital Markets; and Post Trade. I look forward to working with David Craig, the wider Executive Committee and our global team to execute on our strategy. I would also like to thank colleagues within the Borsa Italiana Group for their significant contribution to the Group’s success, under the leadership of Raffaele Jerusalmi.
The growing demand from asset owners and managers to incorporate sustainable investment approaches into their strategies has persisted through the pandemic. LSEG has many touch points with stakeholders that put us in a strong position to play a key role in the investment chain on sustainable investment. For example, FTSE Russell is working closely with customers to calibrate indices to their requirements to integrate climate and other environmental, social and governance (ESG) themes. The FTSE TPI Climate Transition Index, which was launched in early 2020, was the first global index to enable investors to align a broad equity portfolio with climate transition and the goals of the Paris Agreement. And in October, BlackRock selected FTSE Russell’s ‘Advanced Climate EGBI’ as the benchmark for the first climate risk-adjusted government bond ETF in the market. In Capital Markets, London Stock Exchange’s Green Economy Mark recognises listed companies with 50% or more of their revenues derived from products and services that contribute to the global green economy. Its Sustainable Bond Market welcomed 43 new issues in 2020 raising £14 billion across its sustainability, social and issuer-level segments.
LSEG has been a public supporter of the Task Force for Climate-related Financial Disclosures, TCFD, since its launch in 2017. In July, Mark Carney, UN special envoy for climate and finance, and I launched an initiative with the United Nations Sustainable Stock Exchanges (UN SSE) to work with exchanges around the world to help their issuers transition towards net zero. LSEG is now chairing a UN SSE advisory group, alongside the Johannesburg Stock Exchange to develop reporting guidance based on TCFD. These guidelines can then be used by corporate issuers, wherever they are listed, to ensure globally consistent disclosures.
In February 2021, LSEG also confirmed that it had become a signatory to the Business Ambition for 1.5oC, and a member of the United Nations Climate Change ‘Race to Zero’. The Group’s ambitious, science-based targets to reduce emissions in alignment with the Paris Agreement have also been approved by the Science Based Targets initiative (SBTi).
LSEG remains focused on building long-term partnerships with our customers to develop value-add products and services across the investment cycle. FTSE Russell continues to be a leader in the global index industry and is well positioned in growth segments such as passive investing. Passive assets under management are estimated to grow to US$36.6 trillion in the next five years and FTSE Russell’s multi-asset capabilities are a key differentiator enabling product innovation across global equities and fixed income. Despite a challenging macro-economic environment, 44 ETFs linked to FTSE Russell benchmarks were launched in 2020 including China’s first onshore Bond ETF listed in Singapore. At the end of 2020, the value of ETF assets tracking its indices was US$869 billion, up 16% on the previous year.
FTSE Russell’s close partnerships with exchange groups resulted in a number of contract wins including a 10-year extension to our index derivatives agreement with Cboe Global Markets. FTSE Russell also strengthened its longstanding partnerships with SGX and Johannesburg Stock Exchange to provide a comprehensive range of derivatives and fixed income indices.
In Post Trade, LCH has engaged closely with the relevant government authorities and industry participants to support the global transition to alternative reference rates. In October, LCH successfully completed the transition to SOFR discounting. More than one million contracts transitioned with a total notional of US$120 trillion including cleared interest rate swaps in SwapClear, deliverable and non-deliverable forwards and options in ForexClear, and cross-currency swaps in SwapAgent. FTSE Russell has also partnered with market participants in the development of a new sterling interest rate benchmark based on overnight indexed swaps and has begun publication of daily indicative Term SONIA Reference Rates.
2020 clearly demonstrated the importance of markets remaining open to enable price discovery and access to liquidity. Despite extreme market conditions, particularly in Q1, all of our markets continued to operate as normal with record volumes executed on our trading and clearing platforms. For example, 44.8 million trades were executed on London Stock Exchange’s Order Book in March, 74% higher than the previous record. LCH’s SwapClear processed US$1.1 quadrillion in notional in 2020, from a record 6.4 million trades. US$747.2 trillion in notional, and 5.2 million trades were compressed over the period, enabling members and their clients to save approximately US$33 billion in capital over the course of the year. LCH has embedded various anti-procyclical measures within its risk models, as a result of this prudent risk management approach, during the market stress and increased volatility of March and April 2020, LCH risk models behaved in a very predictable and incremental manner with very modest gradual increases in initial margin.
The pandemic and the resulting economic disruption highlighted the importance of access to liquidity and the ability for firms to raise equity capital efficiently. In 2020, 526 businesses raised £34.4 billion in follow-on capital, 113% more than in 2019 and the most in a decade. Many of these firms are listed on AIM, London Stock Exchange’s growth market, which celebrated its 25th anniversary in June. £9.2 billion was raised through IPOs, up 27% from 2019. In fixed income, over £718 billion was raised, a 77% increase on 2019. Of this, over £75 billion was raised through Covid-19 response bonds, including social bonds from development banks across the world.
As part of LSEG’s commitment to broadening retail investor access to public equity markets, the Group made a minority investment in PrimaryBid, a technology platform which connects retail investors with listed companies raising capital. LSEG’s investment builds on collaboration with PrimaryBid to support innovation in capital markets allowing retail investors to access capital raisings on the same terms as institutional investors.
Following the UK’s departure from the European Union and the end of the transition period on 31 December 2020, LSEG continues to advocate strongly for the prevention of the fragmentation of systems designed to make the financial markets efficient, stable and safe. In September, the European Securities and Markets Authority confirmed that LCH Ltd will remain an authorised Tier 2 CCP under the EMIR 2.2 supervisory framework until 30 June 2022. As such, LCH Ltd continues to offer clearing for all products and services to all members and clients. LCH will also engage and cooperate with the relevant regulatory authorities in respect of the long-term permanent recognition of LCH Ltd under EMIR 2.2. Turquoise Europe also successfully launched offering customers trading European stocks with a complete continuity of service.
As a leading global financial markets infrastructure and data provider, LSEG provides high value services to customers around the world. We run businesses that are of systemic importance and recognise that in doing so we hold an important position in the financial ecosystem with a broad set of responsibilities to our stakeholders. We are also acutely aware of the role LSEG can play in the economic recovery driving financial stability and sustainable growth by enabling businesses and customers to fund innovation, manage risk and create jobs.
Events from across 2020, in particular the Black Lives Matter movement, have also led us to reflect on the importance and urgency of strengthening LSEG’s commitment to diversity and inclusion, particularly racial inclusion. In June we launched six workstreams to improve our focus on ethnic diversity and make LSEG a more inclusive environment. Those six workstreams are: Culture, Wellbeing, Hiring, Training, Mentoring and Data. At the heart of this approach is the desire to create real, substantive and sustainable change across the Group. We have laid some of the foundations to improve diversity and strengthen inclusion at LSEG and we have grown our Inclusion Networks. We have also made public commitments on race and disability equality through the Race at Work Charter and The Valuable 500. There is clearly much more to do but LSEG is fully committed to that effort.
With our trusted expertise, global scale, and foundational financial and transaction services, our whole organisation is focused on partnering with our customers, helping them to access data, trading tools, analytics, liquidity and risk management across the financial markets and at scale around the globe.
The Group is well positioned for future growth despite an uncertain macro-economic and regulatory environment. The Group will also continue to invest in new products and services as well as operational excellence and resiliency. I look forward to working with the Executive Team to deliver for our customers, shareholders and other stakeholders.
Finally, I would like to take the opportunity to thank all of our people across the Group for their hard work in delivering another successful performance in uncertain and challenging times.
The financial review covers the financial year ended 31 December 2020.
Commentary on performance uses variances on a continuing organic and constant currency basis, unless otherwise stated. Constant currency is calculated by rebasing 2019 at 2020 foreign exchange rates. Sub-segmentation of revenues are unaudited and are shown to assist the understanding of performance.
· Total revenue of £2,124 million (2019: £2,056 million) increased by 3%
· Total income of £2,444 million (2019: £2,314 million) increased by 5%
· Adjusted EBITDA1 of £1,329 million (2019: £1,265 million) increased by 5%
· Adjusted operating profit1 of £1,118 million (2019: £1,065 million) increased by 6%
· Operating profit of £755 million (2019: £738 million) increased by 3%
· Adjusted basic earnings per share1 of 209.7 pence (2019: 200.3 pence) increased by 5%
· Basic earnings per share of 120.3 pence (2019: 119.5 pence) increased by 1%
· Total dividend per share of 75.0 pence (2019: 70.0 pence) increased by 7%
There were no discontinued operations in 2020. The assets included in the divestment of the Borsa Italiana Group have been classified as discontinued from 13 January 2021.
Group Chief Financial Officer
1London Stock Exchange Group uses non-GAAP performance measures as key financial indicators as the Board believes these better reflect the underlying performance of the business. As in previous years, adjusted operating expenses, adjusted EBITDA, adjusted operating profit and adjusted earnings per share all exclude amortisation and impairment of purchased intangible assets and goodwill and non-underlying items